Competition heats up in mobile market

Safaricom takes note as rivals make significant gains

Airtel and Telkom Kenya will need to consolidate recent positive results in different market frontiers if they are to quickly grow their market share should their merger go through, suggests a Nation Newsplex analysis of recent mobile use trends.

A year-on-year comparison from the July-September quarter of 2017 and 2018 shows that the two telcos registered significant gains on certain key areas of competition against the industry leader, Safaricom, according to data from the Communications Authority of Kenya (CA).

Safaricom lost ground to the competition in overall subscription, voice traffic, text messaging and Internet data.

M-Pesa’s wide network of agents, which has enabled customers to readily deposit or withdraw money, remains the biggest challenge to any operator attempting to grow its stakes in the mobile money market.

During the period under review, Safaricom ceded eight percent of the market subscription share to competitors − dropping from 72 percent to 64 percent. Airtel led the onslaught with a subscription growth of 71 percent, followed by Telkom Kenya (22 percent) and Equitel (four percent).

The growth by the two soon-to-be partners is particularly a big gain because having very low numbers of subscribers on their networks has been a major hindrance in their individual bids to increase their market share.

Talk time

The increase in subscriptions coupled with intense marketing campaigns saw a growth in the number of subscribers using services in the two networks, at the expense of Safaricom. Airtel recorded a 148 percent spike in outgoing call time, from 1.9 billion to 4.8 billion minutes, the highest rise. This was a third of the 14.4 billion minutes quarter total. Telkom Kenya was second, recording a five percent increase to 619 million or four percent of the total call minutes. Safaricom also had a five percent increase in call time with 8.9 billion minutes, thus still dominating the voice services frontier (62 percent).

In the event of a merger, the combined Airtel and Telkom share of outgoing call minutes (37 percent) will be a good place to start from if the steep subscription and call time growth curves can be translated into a larger share of market revenue.

CA attributed the drop in Safaricom’s voice traffic to the end of the Safaricom Tunukiwa Promotion, in which customers bought voice or sms bundles at cheaper rates and stood a chance of winning a prize.

The proportion of the time spent by Safaricom subscribers who made calls to people on the same network shrunk by 16 percentage points to 67 percent by September 2018 from 83 percent, the market share it had held since 2014. Airtel’s share increased by more than a fifth, from eight percent to 30 percent in the same period. Telkom stagnated at three percent.

Airtel commanded more than a half (58 percent) of the off-net outgoing call time (calls to other networks), a four percent increase from the same period the previous year. Safaricom came in second with 26 percent, while Telkom Kenya was third (13 percent) and Equitel (two percent). Generally, the total number of outgoing call time during the three-month period under analysis stood at 14.38 billion minutes, a rise by a third from the previous year.

Even as Safaricom’s call minutes went down, voice revenue still remained the largest source of service revenue, accounting for 42 percent, according to the company’s unaudited half year results for the period ended September 30, 2018. It is followed by M-Pesa (31 percent), mobile data (17 percent) and sms revenue (eight percent).

Despite accounting for the least share of total service revenue (three percent), fixed data services was the area with the fastest growth rate in proportion of the market leader’s income. Fixed revenue increased by a fifth to Sh3.91 billion in 2018. M-Pesa was second, with an 18 percent increase, followed by mobile data (11 percent).

Sms traffic

Another frontier that saw the other players outperform the industry leader in rate of improvement was on Short Message Services (SMS).

Despite overall total number of sms sent declining by a fifth from 19.3 billion to 15.47 billion, Airtel and Telkom registered significant growth of 70 percent and 24 percent respectively in the period under review. But Safaricom still had a stranglehold on sms with a 94 percent share, even after its sms traffic fell by 22 percentage points. The company also recorded a drop in sms revenue in the half-year ended September 30, 2018 from Sh8.92 billion in 2017 to Sh8.81 billion in 2018.

On average, subscribers sent fewer sms between July and September 2018 (111 per month) than in the same period in the previous year (157 per month). The CA, in its 2017/2018 quarterly report, attributes the higher 2017 figures to the electioneering period during which the services were used by various politicians to reach out to the public.

Globally, there has been a decline of voice and SMS usage. In Safaricom’s 2018 annual report, the CEO, Bob Collymore, says the company is planning to introduce more innovative products and services to stay competitive. ''In light of this trend, we are moving towards a more resilient business model that will drive sustained business growth by leveraging new opportunities in mobile and fixed data, and mobile money transfer and payments,'' he says.

Mobile money

M-Pesa remained the biggest player in the money market sector, accounting for more than three-quarters of the money transferred via mobile, and a similar share in the number of mobile transactions done by the five major operators.

In the period under review, Sh2.03 trillion was transacted, a growth of 22 percent. Out of this amount, M-Pesa transacted Sh1.59 trillion, followed by Equitel Money (Sh439.2 billion), Mobile Pay (Sh1.4 billion), Airtel Money (Sh1.2 billion) and T-Kash (Sh197 million).

About three in four mobile money transfers were M-commerce transactions (buying of goods and services), an increase from 66 percent in the same quarter the previous year. This signals a growing trend in the ease and preference of buying goods and services using mobile money.

M-commerce transactions, which entail customer-to-business, business-to-customer and business-to-business transactions, have been growing thrice as fast as person-to-person transactions since 2016, while the value of money moving in e-commerce grew five times faster than that of person-to-person transactions.

In the past three years, it is only in the fiscal year 2016/2017 that the value of person-to-person transactions (Sh474.5 billion) exceeded m-commerce (Sh447.4 billion), but that was with a tiny margin.

However, a deeper analysis shows that the average amount of money transacted on mobile per subscription in 2018 dropped by nine percent from Sh3,089 in 2017 to Sh2,776.

It is yet to be seen whether the number of mobile money transactions will fall following the coming into force of the Finance Act 2018 in June last year, effectively increasing excise duty on mobile money transfers from 10 percent to 12 percent. So far, Safaricom has responded by limiting the popular M-Pesa free transactions for Sh100 and below to three per day.

An Airtel-Telkom merger hoping to make mobile money one of its leading revenue stream like Safaricom has done will have to invest considerably to catch up with M-Pesa’s popularity in the country’s financial sector.

The wallet-to-wallet interoperability introduced last year has seen Safaricom integrate its M-Pesa platform with Telkom‘s T-Kash and Airtel’s Airtel Money, and plans to integrate T-Kash and Airtel money are underway.

M-Pesa’s wide network of agents, which has enabled customers to readily deposit or withdraw money, remains the biggest challenge to any operator attempting to grow its stakes in the mobile money market.

Mobile data

Safaricom was still the mobile data giant in July – September 2018 despite losing to Airtel six percentage points of the 76 percent stake it held in 2017. Airtel grew its share by six percentage points to 22 percent.